Greenhouse Gas Emission Limits.
Since 2008, state law has established statewide limits on the emission of greenhouse gases (GHGs) in Washington (statewide statutory emission limits). The Department of Ecology (Ecology) is responsible for monitoring and tracking the state's progress in achieving the statewide statutory emissions limits. In 2020, additional legislation was enacted to update the statewide statutory emissions limits to the following:
The Climate Commitment Act's Cap-and-Invest Program.
Under the 2021 Climate Commitment Act, in order to ensure that GHG emissions are reduced consistent with the state's 2030, 2040, and 2050 statewide statutory emissions limits, Ecology must implement a cap on GHG emissions from covered entities and a program to track, verify, and enforce compliance through the use of compliance instruments, which include allowances or eligible offset credits. The Cap-and-Invest Program (Program) must commence by January 1, 2023.
The Program must consist of:
Ecology must consider opportunities to implement the Program in a manner that allows linking the Program with those of other jurisdictions.
Compliance obligations under the Program are phased in over the following four-year compliance periods:
By October 1, 2022, Ecology must adopt annual allowance budgets for the first compliance period to be distributed from January 1, 2023, through December 31, 2026. Ecology must also adopt annual allowance budgets for the second compliance period. By October 1, 2028, Ecology must adopt by rule the annual allowance budgets for the calendar years 2031 through 2040. The annual allowance budgets established under the Program must be set to achieve the share of reductions by covered entities necessary to achieve the 2030, 2040, and 2050 statewide statutory emissions limits.
If a Program participant does not submit sufficient compliance instruments to meet its compliance obligation by the specified dates, a penalty of four allowances for every one compliance instrument that is missing must be submitted to Ecology within six months. When a covered or opt-in entity reasonably believes that it will be unable to meet a compliance obligation, the entity must immediately notify Ecology. Upon receiving notification, Ecology must issue an order requiring the entity to submit the appropriate penalty allowances. If a covered or opt-in entity fails to submit the appropriate penalty allowances, Ecology must issue an order or a penalty of up to $10,000 per day per violation, or both, for failure to submit penalty allowances. The order may include a plan and schedule for coming into compliance.
Emissions-Intensive Trade-Exposed Facilities.
The following industry process descriptions in the North American Industry Classification System (NAICS) are considered emissions-intensive and trade-exposed:
By July 1, 2022, for purposes of the second compliance period, Ecology must adopt by rule objective criteria for emissions intensity and trade exposure to identify Emissions-Intensive Trade-Exposed (EITE) businesses, in addition to the EITE facilities with the above-listed NAICS codes.
Emissions-Intensive Trade-Exposed Emission Reporting and No-Cost Allowance Allocation.
By September 2022, each EITE facility must submit its carbon intensity baseline to Ecology, using 2015-2019 data unless the facility experienced abnormal periods of operation. Ecology must review and approve the baseline by November 2022. During the first compliance period, each EITE must record its facility-specific carbon intensity baseline using actual production.
Owners or operators of EITE facilities that are required to participate in the Program must receive an allocation of allowances at no cost as follows:
Prior to the second, third, or subsequent compliance periods, Ecology may adjust benchmarks upward after determining that additional reductions in carbon intensity or mass emissions by an EITE facility are not technically or economically feasible. Ecology may base this upward adjustment on an EITE facility's best available technology analysis. By rule, Ecology must provide for EITE facilities to apply for upward benchmark adjustments, based on any significant changes in an EITE's competitive environment or manufacturing processes or an EITE facility experiencing abnormal operating periods.
If an EITE facility's actual emissions exceed its assigned allowance allocation, it must acquire additional compliance instruments. Ecology must limit the use of offset credits for compliance so that the provision of offset credits plus no-cost allowances does not exceed 100 percent of an EITE facility's total compliance obligation.
If an EITE facility ceases production and closes, Ecology must withhold or withdraw allowances allocated to the facility.
If an EITE facility curtails production, it retains its allowances, does not receive new free allowances, and cannot sell, transfer, or trade its allowances. The allowances of a curtailed facility that closes are transferred to the emissions containment reserve (which is managed by Ecology, and which contain allowances that are distributed to new or expanded EITE facilities).
An owner or operator of multiple EITE facilities may transfer allowances among eligible facilities.
Ecology must adopt rules for the allocation of allowances at no cost to newly-constructed EITE facilities. A new or expanded EITE facility during the first compliance period receives, from the emissions containment reserve, allowances equal to the amount of its emissions.
Required Ecology Engagement with the Legislature Regarding Emissions-Intensive Trade-Exposed Facilities.
During the 2022 regular legislative session, Ecology must propose agency-request legislation outlining a compliance pathway for EITE facilities to achieve a proportionate share of reductions to achieve the state's 2050 statewide statutory emission limits. No expenditures may be made from three of the accounts that Program auction proceeds are deposited into unless the Legislature enacts Ecology-request legislation that outlines a compliance pathway specific to EITE facilities for achieving their proportionate share of emission reductions under the statewide statutory emission limits.
By December 2026, Ecology must report to the Legislature on alternative methods for determining the amount and schedule of allowances allocated to EITE facilities covering the 2035-2050 period of Program implementation. Ecology must form an advisory committee that includes EITE manufacturers in developing the report. If the Legislature does not adopt a compliance obligation for EITE facilities by December 1, 2027, EITE facilities must continue to receive allowances as provided for in the third compliance period beginning in 2031.
Climate Commitment Account.
The Climate Commitment Account receives a portion of the auction revenues from the Program. Projects, activities, and programs eligible for funding from the Climate Commitment Account must be physically located in Washington and must meet high labor standards, including family-sustaining wages, benefits including health care and employer-contributed retirement plans, career development opportunities, and access to economic benefits from such projects for local workers and diverse businesses. Eligible uses of Climate Commitment Account funds include, but are not limited to, those that involve the following:
Money in the Climate Commitment Account may not be used for projects or activities that would violate tribal treaty rights or result in significant long-term damage to critical habitat or ecological functions. Investments from the Climate Commitment Account must result in long-term environmental benefits and increased resilience to the impacts of climate change.
Emissions-Intensive Trade-Exposed (EITE) facilities identified in statute by North American Industry Classification System (NAICS) code category are identified based on the NAICS code categories that existed as of January 1, 2021.
For the year beginning January 1, 2035, EITE facilities are awarded no-cost allowances equal to 88 percent of the facility's mass-based baseline, if the EITE facility is using a mass-based baseline, or 88 percent of the facility's carbon-intensity benchmark multiplied by the facility's actual production, if the EITE facility is using a carbon-intensity benchmark.
Each year from 2036 through 2050:
By rule, the Department of Ecology (Ecology) may modify the no-cost allowance allocations to EITE facilities between 2035 and 2050 if necessary to ensure proper market functioning, the achievement of the proportionate share of the statewide statutory emission limits, or to provide for alignment with other jurisdictions to which the state has linked.
Ecology must adopt a rule to provide a process for an EITE facility to apply to Ecology for an upward adjustment in its allocation of direct no-cost allowances prior to the fourth or subsequent compliance periods. The process must allow an EITE facility to claim that it is already employing best available technology (BAT), and must require the submission of data and information necessary to allow Ecology to make a BAT determination. Emissions-Intensive Trade-Exposed facilities that already employ BAT must receive no-cost allowance allocations equal to 100 percent of their emissions.
An EITE facility that is not already employing BAT may submit a BAT plan to Ecology. Such BAT plans:
Emissions-Intensive Trade-Exposed facilities that are implementing a BAT deployment plan must receive no-cost allowance allocations equal to 100 percent of their projected emissions under the BAT plan for each year of the plan.
The distribution of no-cost allowances to EITE facilities that are already employing BAT or that are operating under a BAT plan may not be greater than the amount that the EITE facility would have received for the year beginning January 1, 2035.
Emissions-Intensive Trade-Exposed facilities must re-submit plan plans prior to each compliance period, but may use previously-approved plans as the basis for a re-submitted plan.
Ecology may request or consider information about BAT for an EITE facility sourced from any person. Ecology must reject any BAT plan for which Ecology does not have sufficient data or information to make a BAT determination. Emissions-Intensive Trade-Exposed facilities that fail to employ BAT as scheduled under the BAT plan are subject to penalties for each allowance it received under the upward adjustment, so that the EITE facility must submit four allowances for each extra allowance it received. Emissions-Intensive Trade-Exposed facilities that fail to employ their BAT plan as scheduled are also precluded from submitting a new BAT plan. Any person may appeal a BAT plan approval or disapproval decision by Ecology to the Pollution Control Hearings Board.
An adjustment in the allocation to an EITE facility may not increase the Cap-and-Invest Program's (Program) annual allowance budget for any calendar year of the compliance period in which the adjustment was made or any future calendar years, and may not prevent the achievement of the statewide statutory emission limits.
Ecology is no longer required to submit a report to the Legislature on EITE facility allowance schedules in 2026. There is no longer a restriction on expenditures of Program revenues beginning in April 1, 2023.
Money in the Climate Commitment Account authorized for industry facility emission reduction projects is also specifically authorized for programs, activities, or projects that reduce EITE facility emissions for which the EITE facility has a compliance obligation under the Program.
The substitute makes the following changes to the original house bill:
(In support) Last year's Climate Commitment Act (CCA) required the Department of Ecology (Ecology) to bring forward agency-request legislation addressing a compliance pathway for Emissions-Intensive Trade-Exposed (EITE) facilities. Balancing state emission reduction goals and economic competitiveness issues for EITE industries is a challenging problem. Leakage of jobs to other jurisdictions is one of the worst possible outcomes. The CCA's generous allocation of free allowances to EITEs in the early years of the Cap-and-Invest Program needs to be reconciled with the longer-term steep decline of the overall state emissions cap under the law. The CCA's early allocation of no-cost allowances to EITEs amounts to billions of dollars in value that EITEs can use to help invest in their transition to lower-emitting practices. Using best available technology (BAT) should be a compliance option for EITEs. Best available technology must be independently evaluated against international standards. Each EITE has individual emissions, process, and trade characteristics. Reducing the long-term allocation of free allowances to EITEs will reduce the compliance burden on other regulated industries subject to the CCA's cap. The allocation of allowances early in the program, plus a commitment of state funding to EITE decarbonization projects, will help EITEs capitalize the longer-term emission-reduction investments necessary for them to proportionately contribute to meeting state emission reduction targets. There are a variety of state programs in place to help Washington industries reduce their emissions, and other incentives, such as tax preferences for green hydrogen, will contribute to EITE compliance pathways under the CCA's cap. Low-emission technology for EITEs to deploy will continue to be invented and become more widely available and cost-competitive as the world increasingly demands cleaner energy and manufacturing. The CCA helps incentivize low-carbon innovations. It is important that Washington's program be designed in a manner that allows linkage with California's emission reduction program. It is important that EITE greenhouse gas emission reductions be accompanied by reductions in criteria air pollutants, and not disproportionately impact overburdened communities.
(Opposed) This bill does not provide a clear and achievable compliance option for EITE businesses after the third compliance period of the program. The steep decline in emission allowances to EITEs will lead to leakage of jobs and emissions to other jurisdictions that do not have a program that makes emitting greenhouse gases more expensive. Washington manufacturers will be at a competitive disadvantage due to program compliance costs. Emissions-Intensive Trade-Exposed businesses employ thousands of union-based jobs. Compliance with the CCA program as envisioned in this bill could cost individual businesses tens or hundreds of millions of dollars. Many EITE businesses have already substantially reduced greenhouse gas emissions in recent years, and many of the easiest methods of reducing emissions have already been implemented. The steep decline in the allocation of free allowances errantly assumes that fundamental process or fuel source changes will be possible soon. Electrification of boilers may require new technology, in addition to rapid and costly infrastructure build-out by the electric utilities upon which EITEs depend. Best available technology must be a compliance pathway that does not require a specific level of emissions reduction, and that reflects the ability of each type of EITE industry to realistically decarbonize. Facility emissions from the use of BAT should be excluded from the CCA program cap. Some greenhouse gas emissions are inherent emissions of the process of making certain EITE products, and can't be avoided with any technology currently in use. Current technology for many EITEs is a limiting factor in their ability to reduce greenhouse gas emissions. The products produced by EITEs should have their emissions considered on a lifecycle basis, in some instances. The program must balance the emission allowance allocations granted to EITE facilities with the needs of other CCA program participants to obtain compliance instruments. Emissions-Intensive Trade-Exposed facilities should be required to reduce their emissions by 50 percent by 2035, in order to make EITE emission reductions keep pace with the state's overall emission reduction goals.
(Other) Washington's public ports own and operate shipping terminals, railroads, and similar facilities. All ports in Washington are dependent on manufacturing businesses, agriculture, and trade. It is in the state's best interest to negotiate a fair compliance pathway that will allow EITE businesses to remain in Washington.